Posted on 03/22/2005 2:49:46 PM PST by quidnunc
It's hard to believe that the bond rating of General Motors may soon fall to junk, but it's true. Last week, GM announced an expected loss of $850 million, about $1.50 a share, for the first three months of 2005. The company slashed its profit forecast by $2 billion for the year.
It's troubling news, obviously, for GM's shareholders and employees. But if more Americans paid attention to the troubles facing General Motors, they might grasp the urgency of America's Social Security crisis. General Motors is going bankrupt for the same reason Social Security is going under: unfunded liabilities in the form of promised benefits to retirees.
Over the decades, union leaders have won such generous pension and healthcare benefits for GM employees that today GM is the world's largest private consumer of health care, covering the medical costs of more than 1 million people. Health care represents more than $1,000 worth of cost, on average, in every vehicle General Motors produces, its chairman, Richard Wagoner, has said.
GM spends more on health care than on steel. The health-care costs — about $5.5 billion a year and growing — are fixed. GM's unfunded health-care obligations amount to $57 billion. GM also holds America's largest private pension obligation. The company estimates its total future American pension costs at $87 billion.
The company's total market valuation stood last week at $16.39 billion. General Motors was once the leading car manufacturer in the world. Today, it's a pension fund and a health maintenance organization with a relatively small car-making operation on the side.
-snip-
(Excerpt) Read more at nysun.com ...
--the UAW better wake up ,also---
The UAW had their glory days - now it's time to pay the piper.
Why do you say GM is going bankrupt? The article doesn't support that statement.
When are the GM-UAW contracts up? 2007?
Always look for the union label... then buy something without it.
Why should they? GM made the genius decision to cut a bunch of non-union labor... So that makes it pretty apparent that its the non-union labor is whats wrong with GM.
My next car will probably be an American Honda.
"Junk" doesn't always potend bankruptcy. Some great companies have been financied by junk bonds. That said, getting downgraded toward junk status, instead of moving in the other direction, is not good.
GM's pension obligation is $3 BILLION overfunded. They don't need to make a contribution through the end of the decade.
This article is alarmist "global warming" type stuff.
From the excerpt:
General Motors is going bankrupt for the same reason Social Security is going under: unfunded liabilities in the form of promised benefits to retirees
I agree that GM is unlikely to go bankrupt. I think they have some $30e9 in cash on hand.
GM was praying for Kerry to start National Healthcare to bail them out.
Looks like that strategy didn't work out...so they're toast, unless they can win major concessions on their benefit obligations, which is undoubtably what the publicity blitz is all about.
Very sad. Reminds me of the Twentieth Century Motor Company in 'Atlas Shrugged'.
I fear the next thing is a taxpayer bailout, like Chrysler in the early '80's - 'too big to fail' theory.
My daddy used to say..."Stay in school, study hard, work hard, and one day you will make more money than General Motors." Guess he was right.
From the second paragraph:
General Motors is going bankrupt for the same reason Social Security is going under: unfunded liabilities in the form of promised benefits to retirees.
"$30e9 in cash on hand"
Is that more or less than $E83:B times $2.98? I am terrible at math.
p.s. It's getting late and I'm tired. Take no offense.
Union Goon Alert (UAW cowards threaten worker)
http://www.freerepublic.com/focus/f-news/1368170/posts
with crap like this I have less and less sympathy for them.
It means about $30 billion. "e9" is scientific notation for "times 10 to the 9th power"; 10 to the 9th power is 1 billion.
When bonds come due, they're not going to be paid out with free test drives.
They're junk status because the ability of GM to actually redeem the bonds is becoming less and less credible.
If GM wants, they can issue more bonds, but they'd be laughably subprime.
It may be premature to call GM almost bankrupt. A lot of things the company can do and will try in the meantime. However schwab had negative credit ratings out fot both GM and Ford. GM stock is an outright sell.
My last company, Lockneed Martin went through a period wher pensions were reformed and health care costs began to be sharred between employee and company. This is the future for GM. It was not fun, and people on medicare have a better program for now. (With the average family paying half their medical costs.) What this article says is the chickens will one day come home to roost.
In the meantime, I will let my GM bonds cash out and purchase some healthcare company bonds.
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